Saturday, May 9, 2009

Twist in the US Ethanol Saga

Widespread use of ethanol (an alcohol produced mostly from corn in the US) in gasoline is relatively new to the US. Legislation in the US (EPACT-2005 and EISA-2007) mandates minimum gallon amounts of ethanol to be added to US gasoline. The amount of gallons mandated increases each year.

Most gasoline in the US now contains some ethanol. If you live in the US and look closely at a gasoline pump you will likely see a little notice saying "contains up to 10% ethanol". 10% ethanol and 90% petroleum gasoline is the blend level at which most modern gasoline powered vehicles require no modification (check your vehicle owner's manual).

The minimum mandated gallons of ethanol to be added to gasoline was not a blending percentage issue until US motorists began to buy less gasoline in the recession of 2008 (annual declines in oil consumption are quite rare - the last major declines occurred in the early 1980s). Now gasoline blenders have minimum gallons of ethanol to add to gasoline, but because of the recession these minima may require blending up to 15% ethanol into gasoline.

You may not care about ethanol blend percentages, but you should as the guys who made your car and gas stations are worried.

Automobile manufacturers are expressing concern that their vehicles may not be able to cope with greater than 10% ethanol in gasoline. Retail station owners are also objecting to the higher blend percentages which could damage storage and pump systems.

The US EPA is investigating how to handle the issue and a ruling is expected later this year. The law is clear and so the EPA has to somehow finesse the ethanol into gasoline or hope for a swift recovery and growth in US gasoline demand.

(Note that ethanol is not widely used as a gasoline additive outside the US and Brazil. Oil 101 describes ethanol in detail)
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